IAMR Occasional Paper 1/2014 Why a Jobs Turnaround Despite Slowing Growth? Santosh Mehrotra Sharmistha Sinha Jajati K. Parida Ankita Gandhi Institute of Applied Manpower Research Planning Commission, Government of India 2014 Planning Commission 2014 : 978-93-83133-35-2 All rights reserved . No Part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, without the prior permission in writing of Planning Commission Why a jobs turnaround despite Slowing growth? Santosh Mehrotr, Sharmistha Sinha Jajati K. Parida, Ankita Gandhi Institute of Applied Manpower Research Planning Commission, Government of India Dr.Santosh Mehrotra is Director-General, Institute of Applied Manpower Research, Planning Commission (intherank of Secretary,GovernmentofIndia). He has an MAin Economics from the New School for Social Research, New School University, New York (1981) and Ph.Din Economics from Cambridge (1985). Dr. Mehrotra has over 30yearso fex perience of work in ginacademia and public systems. Of this 30- year period, over 10 have been in the Indian public system, including seven years directly in the Government of India (Planning Commission), and over five years in academia in government-funded research institutions and university (Jawaharlal Nehru University, NewDelhi, where he was Associate Professorfrom1988-1991). From 1991to2006, hespent 15 years with two UN agencies–UNICEF and UNDP. He was chief economist of UNDP's global Human Development Report (2002-05), New York. Healsoled the research programme on developing countries at UNICEF's global research institute, the Innocenti Research Centre, Florence, Italy(1999-2002). In September 2006 he joined as head, Rural Development Division, Planning Commission, when he was also Economic Adviser, Social Sectors. He was thenhead, Development Policy Division, Planning Commission (till August 2009). During this period he was an author of several chapters in India's 11thFive Year Plan(2007-2012),and most recently of several chapters in the12th Five Year Plan (including the one on Skill Development and on Employment). He led the team that wrote the second national Human Development Report(OxfordUniversityPress,2011). He was alsoa Parkin Visiting Professorat the Centre for International Development in the Faculty of Social Sciences, Bath University, UK(2010-13). Sharmistha Sinhais Deputy Director, Institute of Applied Manpower Research. She is an economist and gender specialist working on labour and changing employment patterns, gender based discrimination, wage inequality, poverty and other development issues. She is finishing Ph.Din economics from Jawaharlal Nehru University, New Delhi. JajatiK.Parida is Deputy Director, Institute of Applied Manpower Research. He is an economist working on employment, labour migration, regional development and holds a Ph. Din Economics from the Institute of Social and Economic Change, Bangalore. AnkitaGandhi is an economist working on issues of Human Development, Employment and Skills. She is currently engaged with UNDP and working on G20 issues in the Department of Economic Affairs, Ministry of Finance. She is also pursuing a Ph.D. in Economics at Jawaharlal Nehru University, New Delhi. Contents Section Page No. Introduction 1 1 Employment Trends in India 2 2 Jobs: who gained or lost? 7 3 Towards an understanding of employment trends since 1993-94 13 4 Policy implications: Sustaining the Lewis-ian transition of workers 23 into non-agricultural employment List of Tables Table 1 Size of Labour Force, Workforce (by sectors), Unemployed and 3 Employment Elasticity of Output, 1994 to 2012 Table 2 Absolute Employment by Principal and Subsidiary Status, Sector wise, 4 2000 to 2012 Table 3 AbsoluteEmployment and Change in Manufacturing, Non- 6 manufacturing and Service Sectors Employment (PS+SS) in India, 2000 to 2012 Table 4 Sector-wise employment by sex and types of employment 9 Table 5 Employment and Change in employment during the decade, by sector 10 and type of employment (PS+SS) Table 6 Sector-wise distribution of workers by organised-unorganised 11 enterprises and formal-informal employment, 2004-2012 (% figures in parentheses) Table 7 Number of workers by size of enterprise in Industry and services 13 sectors in India Table 8 Relationship between Demographic Trends, the Workforce and 14 Participation in Educational Institutions Table 9 Manufacturing Integration and Trade balance (with and without POL 20 exports) Table 10 Capital intensity of output in organized manufacturing 21 Table 11 Trends of Rural and Urban Real wages by Occupation in India, 1994- 21 2012 Table 12 Percentage Distribution of Factories by Size of Employment (all 26 sectors) List of figures Figure 1 Absolute Changes in employment by gender (million) 7 Figure 2 Trends of Real wage rates (at 2001-02 prices) in Rural and Urban India 16 1994-2012 Figure 3 Trends of Merchandise Exports of India,1996-2013 19 Figure 4 Employment, Productivity and Working Conditions, by Size of 27 Enterprises Bibliography 30 iv Executive Summary The paper identifies key trends in employment over 2000-2012, and attempts an explanation of the trends. A shift away from agriculture to non-agricultural employment has gained momentum. Prior to 2004-05, only the share of agriculture in the workforce was falling (from 60 to 49 percent between 1999-2000 and 2011-12). For the first time in India’s post-independence economic history, there has been an absolute fall in the numbers employed in agriculture – by 36.7 million during 2004-05 to 2011-12 – because the number of non-agricultural jobs is growing. Non-agricultural employment grew by 52 million to reach 242.3 million in 2011-12 as against 190 million in 2004-05. While non-agricultural employment grew by 7.5 million per year over 1999-2000 to 2004-5, it also grew by 7.5 mn. pa over 2004-5 and 2001-12. However, the numbers joining the labour force during 2000-2005 was 12 million pa., but fell to 5.5 million between 2004-05 to 2011-12. The result was that the rate of open unemployment fell. Increase in employment in construction sector along with increased infrastructure investment gave a major boost to total employment attracting agricultural workers, contributing to a rise in rural wages. The biggest increase in non-agricultural employment has been in construction, both rural and urban, from a total of 17 million in 2000 to 50 million in 2011-12, with a doubling in total employment in a matter of seven years since 2004-05. Employment in manufacturing sector increased by 9 million during 2010 to 2012, even though it had fallen by 3 million between 2005 and 2010. There has been a recent rise in employment elasticity of manufacturing output, which may well be sustained, since rural consumption has risen significantly over the last decade. The paper identifies the factors underlying the trends: a) It finds that with increasing female education, fall in girl child labour, mechanization in agriculture, and increase in household income, girls and women withdrew from the labour force. The withdrawal by women is a major contributor to employment trends since 2004-05 just as their joining the labour force at a time of stagnant agriculture (1999-2000 to 2004-05) had been a reason for the apparent rise in 20 million ‘jobs’ in agriculture in the first half of the decade (when in fact it was distress employment). b) Fewer people were available to join the workforce due to rising enrolments in school and continuing into education, including for boys and men. This trend significantly intensified after 2004-5, although it had begun earlier. c) Rise in wages, mechanization in agriculture, and increased investment in infrastructure and housing were the reasons for the shift of workers away from agriculture to non-agriculture. d) The decline in manufacturing employment during 2005-2010 was a result of three sets of factors: falling demand for manufacturing exports, rising import-intensity of manufacturing output; and rising wages, with the latter two raising capital intensity. However, just as manufacturing employment grew by 11 million between 2000 and 2005, it grew again most recently between 2009-10 and 2011-12. In fact, it grew much more sharply in these two years (by 9 million) than it had between 2000 and 2005. v e) Decline in poverty and rise in consumption, as an outcome of the rise in real wages, has driven demand for simple consumer goods at the bottom of the pyramid, driving manufacturing employment in the low-productivity small scale enterprises. Based on these trends, the paper makes the following policy suggestions to increase non- agricultural employment. Fluctuations in total employment in the past decade can in part be attributed to women joining and withdrawing from the workforce. If women are voluntarily withdrawing from work to continue their education, policy-makers should be concerned about providing jobs to these educated girls and women who will join the workforce in coming years. Women often do not have access to quality training, especially in rural areas on account of very few training centres (ITIs), infrastructure bottlenecks (safe transportation), and lack of female instructors. Skill development will raise the possibility of increasing women’s labour force participation. Developing specific policies towards developing a supportive care economy and women friendly/oriented jobs in and around the village/city will help women to join the labour force. Young men too face employability issues that derive from their poor level of skills and need adequate training. India has millions of micro-enterprises, and a small number of large enterprises by size of employment. Thus, there is a missing middle among Indian non-agricultural firms. To address the missing middle there is a need to minimize the disincentives for growth of firms. There is an inbuilt disincentive system facing the micro and small enterprises (MSEs) to invest in capital and expand.